On the Estimation of Euler Equations in the Presence of a Potential Regime Shift
AbstractThe concept of a peso problem is formalized in terms of a linear Euler equation and a non-linear marginal model describing the dynamics of the exogenous variable driving the process. It is shown that, using a threshold autoregressive model as a marginal model, it is possible to produce time-varying peso premia. A Monte Carlo method and a method based on the numerical solution of integral equations are considered as tools for computing conditional future expectations in the marginal model. A Monte Carlo study illustrates the poor performance of the generalized method of moments estimator in small and even relatively large samples. The poor performance is particularly acute in the presence of a peso problem but is also serious in the simple linear case. Copyright 2000 by Blackwell Publishers Ltd and The Victoria University of Manchester
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Bibliographic InfoArticle provided by University of Manchester in its journal Manchester School.
Volume (Year): 68 (2000)
Issue (Month): 0 (Supplement)
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Other versions of this item:
- Saikkonen, Pentti & Ripatti, Antti, 1999. "On the Estimation of Euler Equations in the Presence of a Potential Regime Shift," Research Discussion Papers, Bank of Finland 6/1999, Bank of Finland.
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
- C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
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